The Department of Minerals and Energy (DME) has reaffirmed its plans for a new crude oil refinery at the Coega Industrial Development Zone (IDZ), saying it was set to start production in 2015.

The Mthombo project, which would be operated by the State-owned petroleum company PetroSA, would produce about 400 000 barrels of fuel a day, and crude oil would be sourced from countries such as Venezuela and Cuba. However, the DME stated that African crude oil producers such the gulf of Guinea, and possibly Angola and Nigeria, would also be approached to supply the refinery.

The Coega refinery would be one of the first in the world with the ability to refine sour crude oil, which would make a supply agreement with Venezuela and Cuba practical.

PetroSA CEO Sipho Mkhize said that, by 2015, South Africa’s fuel demand would have risen to 200 000 barrels a day. However, building a refinery to produce this amount of fuel would require a capital investment of around $25 000 a barrel. In contrast to this, the capital required for the construction of the 400 000 barrels a day refinery would be an estimated $17 000 a barrel.

Mkhize noted that profitability played a big role when government researched the viability of the refinery.

“You have to make it as profitable as any other project in the world. You have to look at the size of the refinery so that it can compete globally with those assets importing beneficiated fuel into the country," he said.

Although synfuel producer Sasol had a similar project on the cards – the inland Mafutha project which would produce about 80 000 barrels a day – the DME deputy director-general hydrocarbons Nhlanhla Gumede said the two refineries would not be competing for the same market, as these would vary between the inland and coastal markets, which would also include servicing several African countries.

Another reason they would not be competing was that the Mafutha project would only come online in 2018, while the Mthombo project would start producing in 2015.

South Africa was mostly reliant on oil imports, despite the country’s flourishing synfuel capabilities.

Gumede noted that international oil companies were no longer interested in refining, as the upstream industry offered more profitable opportunities.

“Each country now has to make a choice if it wants to be fully reliant on imported product. In South Africa we either had the choice of building a refinery, or getting an international company to do it.”

DME DG Sandile Nogxina stated it was also up to the State to ensure stability of fuel supply.

“There was a need for expansion of the refining capacity in South Africa, and we allowed the market to take advantage of that opportunity, but the market didn’t respond. Whenever the market fails, the State must intervene.”

Nogxina said that in an effort to avoid a deficient power supply scenario, which the county was currently experiencing, the State was stepping in early.

“We have learnt from our past mistakes. We will not allow [a] situation – when there is an indication that the private sector does not have an appetite – [where we] wait on the issues of economic infrastructure, because ultimately it is the responsibility of the State to guarantee and ensure security of supply.”

To subscribe to Engineering News's print magazine email subscriptions@creamermedia.co.za or buy now.